The Commonwealth Bank of Australia (ASX: CBA) share price is in the spotlight today after revealing growth in its FY23 first quarter update.
This is for the three months to 30 September 2022.
CBA FY23 first quarter
The big ASX bank share revealed that its reported cash net profit after tax (NPAT) from continuing operations grew 13% year on year.
FY23 first quarter profit was up 2% compared to the quarterly average of the second half of FY22.
CBA reported that it generated $2.5 billion of cash NPAT, while statutory NPAT was $2.7 billion.
The bank reported that income was up 9%, driven by higher margins and volume growth, partly offset by reduced non-interest income. Net interest income increased by 16%
Expenses, excluding remediation, were up around 4.5%. This was due to higher staff costs, partly offset by lower software amortisation and occupancy costs.
Loan book performance
As interest rates rise, a lot of investor eyes will be focused on how the loans perform. It will be a key factor for the CBA share price.
CBA said that its portfolio credit quality remained sound, with favourable trends in “key credit quality indicators”.
But, the bank did say that it experienced a loan impairment expense of $222 million, with collective provisions “slightly higher”.
CBA revealed that its common equity tier (CET1) ratio was 11.1%. This shows that the banks is more than ‘unquestionably strong’, as required by the banking regulator.
In terms of growth, it achieved $5.1 billion growth in home lending, which was slightly below the system’s level of growth. Household deposits grew below the system rate, but increased by $7.9 billion in the quarter.
Business lending continued to grow at “above-system” levels year on year, with growth across a diverse range of sectors.
Its 90+ day home loan arrears continue to decline, dropping from 0.49% at June 2022 to 0.46% in September 2022.
Final thoughts on the CBA share price
CBA’s Matt Comyn said that it recognises the concern and pressure that many customers are feeling due to the higher cost of living, and increases in the cash rate.
He also said that the economy has shown resilience in the face of growing cost of living and interest rate pressures and despite these near-term challenges, the banking team remain “optimistic on the medium to long-term outlook”.
CBA seems to be doing well in the face of the economic difficulties. I’m not sure if it’s worth buying at a CBA share price over $100. Profits should go higher in the short-term thanks to higher interest rates, but how much will bad debts rise? It makes me uncertain about the current $105 per share valuation.